The Tax Advantages of Working Over Age 60

by David Rodeck

Working over 60 lets you build more money tax-free for retirement.

As you put together your retirement plan, consider a later retirement date. While it may be tempting to jump into retirement as soon as possible, there are significant tax advantages for working over the age of 60. If you plan to delay your retirement by a few years, you can use these advantages to get more money for yourself and your family members.

Retirement Accounts

As long as you keep working, you can keep putting money away into a retirement account. This could be a plan through your job's retirement plan, like a 401(k), or on your own through a traditional individual retirement account, or IRA. You can deduct your contributions into these plans from your taxes. Once you stop working, you can no longer invest in these plans. By continuing to work, you can keep building your retirement nest egg while getting a discount on your taxes for the year.

Tax-Free Growth

Another benefit of working over the age 60 is that it delays your need to take money out of your retirement accounts. The IRS does not tax the investment gains from your retirement accounts until you start taking money out. This gives the investments in your 401(k) or IRA an advantage over your investments in a regular brokerage account. By delaying retirement, your investments continue to grow at a faster rate and you get to procrastinate on your tax bill for another few years.

Roth IRA

The Roth IRA offers a special tax advantage. While the Roth IRA does not give a tax deduction for your contributions, your withdrawals from this account are completely tax-free. Continuing to work and invest in the Roth IRA gives you two tax advantages. First of all, you get to grow more tax-free income for your retirement. Second of all, if you die before spending all the money in your Roth IRA, your heirs get this money tax-free. Staying in the workforce and keeping money in your Roth IRA will give a bigger payday for both you and your heirs down the road.

Higher Social Security

Even though you can start collecting Social Security payments at 62, continuing to work a few more years will get your more bang for your buck. If you're Social Security retirement age is 67, but you start collecting payments at 62, you lose nearly a third of your earned monthly payment. By working until your full retirement age, you'll get your full monthly payment. If you keep working even longer, you'll get an even higher payment from Social Security when you finally retire.

References

About the Author

David Rodeck has been writing professionally since 2011. He specializes in insurance, investment management and retirement planning for various websites. He graduated with a Bachelor of Science in economics from McGill University.